Short Interest
The number of shares currently sold short (borrowed and sold in a bet that the price falls). High short interest above 20% of float signals strong bearish sentiment. It can also set up a short squeeze \u2014 if the price rises, shorts must buy to cover, pushing prices even higher.
Why it matters
Short interest reflects bearish positioning, though much of it comes from hedging, pairs trades, and ETF arbitrage rather than directional bets. It also creates potential for violent short squeezes.
How to read it
Below 3%: negligible. 3-7%: some bearish sentiment. 7-15%: significant, worth investigating why. Above 15%: heavily shorted — either a strong bear case exists, or a squeeze setup. Days to cover (short ratio) matters too — above 5 days means shorts would struggle to exit. Desai et al. (2002) found heavily shorted stocks underperform by ~1% per month on average. However, short squeezes (GME 2021, VW 2008) show the strategy carries extreme tail risk.
Source
SEC Regulation SHO. Short interest reported bimonthly by exchanges.
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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